United States Fidelity & Guaranty Co. v. City of Canton

Decision Date09 June 1930
Docket Number28643
Citation128 So. 744,157 Miss. 680
PartiesUNITED STATES FIDELITY & GUARANTY CO. v. CITY OF CANTON et al
CourtMississippi Supreme Court

Division A

1. MUNICIPAL CORPORATIONS. City held liable to public contractor's surety for breach of contractual obligation to notify surety before making final payment to contractor.

The bond given to guarantee the faithful performance of the contract for construction of curbs and gutters provided that the obligee should, before making to principal final payment provided for under contract, deliver written notice to surety at its office and obtain written consent of surety. The contract provided that payments should be made as work progressed on estimetes made by city engineer, not to exceed eighty-five per cent, fifteen per cent being reserved to city until work was finally completed and accepted.

2. MUNICIPAL CORPORATIONS. Municipal authorities had power to contract for construction of curbs and gutters and paving of streets (Hemingway's Code 1927, section 6774).

Code 1906, section 3338, Hemingway's Code 1927, section 6774 provides that mayor and board of aldermen of city shall "exercise full jurisdiction in matter of streets sidewalks, sewers, and parks; to open and lay out and construct same; to repair and maintain, pave, sprinkle adorn, and light same.

3. MUNICIPAL CORPORATIONS.

City accepting contractor's bond containing provision requiring city to give surety notice before making final payment assumed such obligation (Hemingway's Code 1927 section 6774).

4. MUNICIPAL CORPORATIONS.

Surety, to recover against city paying contractor in full without notifying surety as required, must show that it paid claims and that material and labor were used in construction under contract.

HON. V. J. STRICKER, Chancellor.

APPEAL from chancery court of Madison county HON. V. J. STRICKER, Chancellor.

Suit by the United States Fidelity & Guaranty Company against the city of Canton and the W. J. Horie Construction Company. There was a decree against the construction company, and from a decree dismissing the bill as to the city, plaintiff appeals. Reversed and remanded.

Decree of court sustaining demurrer to bill reversed, demurrer overruled, and cause remanded.

H. B. Greaves, of Canton, for appellant.

Appellant contends that the settlement released the surety pro tanto. Hormell & Co. v. American Bonding Co., 33 L.R.A. (N.S.) 513; First National Bank v. Fidelity & Deposit Company, 5 L.R.A. (N.S.) 412, 40 So. 40; Picard v. Shantz, 70 Miss. 381; U. S. F. & G. Co. v. Parsons, 147 Miss. 335, Opinion 361; 112 So. 469; Canal Bank & Trust Company v. Brewer, 147 Miss. 885, 123 So. 552.

This settlement released surety absolutely for lack of complying with provision of bond as to notice.

Hormell & Co. v. Am. Bonding Co., 33 L.R.A. (N.S.) 513 (Opinion 521); First National Bank v. Fidelity & Deposit Company, 5 L.R.A. (N.S.) 418; State ex rel. v. Surety Co. (Gen. Rule), 45 A.L.R. 380.

The fifteen per cent retainage, in case of default belongs to the surety.

Prairie State National Bank v. U.S. 41 L.Ed. (U.S.) 412; Canton Exchange Bank v. U. S. F. & G. Co., 144 Miss. 579, 109 So. 1; So. Security Co. v. Bank & Tr. Co., 154 Miss. 418, 122 So. 529; Miss. Fire Ins. Co. v. Evans, 153 Miss. 646, 120 So. 742; Union Indemnity Co. v. Metal Works, 150 Miss. 332, 117 So. 251.

City can be sued in this case.

Senatobia v. Ryan, 106 Miss. 413, 63 So. 680; Ryland v. Purvis, 87 Miss. 433, 40 So. 7; section 3314, Code 1906, section 5811, Hemingway's Code of 1917; Board of Education v. West Point, 50 Miss. 647; Ill. Trust & Savings Bank v. Arkansas City, 34 L.R.A. (Fed.) 518.

Payment to wrong person.

Ainsworth v. Ainsworth, 24 Miss. 145.

J. A. Covington, Jr., of Meridian, for appellant.

Under the provisions of the contract and bond the surety has a right to an amount of retained percentage equal to its loss sustained and the city was obligated to preserve such fund for the benefit of the surety.

Calvert v. London Dock Company, 2 Keen, 639; Glenn County v. Jones, 80 P. 695; First National Bank v. Fidelity & Deposit Company, 5 L.R.A. (N.S.) 418; Brandt on Suretyship, 373; Taylor v. Jeter, 23 Mo. 244; Evans v. Garden, 28 S.W. 439; Morgan v. Salmon, L.R.A. 1915B, 407; Stearns on Suretyship, 143; Ausplund v. Aetna Indemnity Company, 81 P. 579, 82 P. 12; O'Neill v. Title Guaranty Company, 191 F. 570; Long v. American Surety Company, 137 N.W. 41; Y. M. C. A. v. United States Fidelity & Guaranty Company, L.R.A. 1915C, 170; Canton Exchange Bank v. Yazoo County, 109 So. 1; Prairie State National Bank v. United States, 164 U.S. 227; Pratt Lumber Company v. T. H. Gill Company, 278 F. 783; Pickard v. Shantz, 12 So. 544.

The surety has a right to recover from the city retained percentage wrongfully released.

Section 6750 of Hemingway's Code 1927; sections 6771, 6773, 6774, 6852, 6874, 6882, 6957, 6984 and 7002; National Surety Company v. County Board of Education of McDowell County, 15 F.2d 993; Commercial Casualty Ins. Company v. Durham County, 128 S.E. 469; Prairie State Bank v. United States, 164 U.S. 227.

W. H. & R. H. Powell, of Canton, for appellant.

The city could have paid the retainage money into court, so that the claimants could contest for it, and if it had done so, then the retainage money would have been adjudged to the surety company.

Canton Exchange Bank v. Yazoo County, 144 Miss. 579; Mississippi Fire Ins. Co. v. Evans, 153 Miss. 635.

By express statute the mayor and board of aldermen of a municipality have full power and jurisdiction to have pavements, sidewalks, curbing and gutters constructed.

Hem. Code 1927, secs. 6774, 6766, and 6771-6773-6852, par. E, secs. 6874, 6882-6957-7002; National Surety Company et al. v. Miller, Rev. Agent, 124 So. 251; Bradley v. Fisher, 20 Law Ed. 651; Canton Exchange Bank v. Yazoo County, 144 Mass. 579; Secs. 3734, 4040, 7886, Hem. Code 1927.

By its failure to comply with the plain terms and conditions of the contract and bond, the city caused the guaranty company a loss equal to the amount of the retained percentage by wrongfully paying it to Horie. If the city is not bound by such provisions, it would be a vain thing to have such provisions in any contract and bond.

First National Bank v. Monroe County, 131 Miss. 828, 95 So. 732; Canton Exchange Bank v. Yazoo County, 144 Miss. 579, 109 So. 1; Union Indemnity Co. v. Acme Blow Pipe & Street Metal Works, 150 Miss. 332, 117 So. 251; Mississippi Fire Ins. Co. v. Evans, 120 So. 742.

The fifteen per cent retainage provision in contracts of this character is one of the securities of the owner for the performance of the contract by the contractor, and also constitutes a fund to which the contractor's surety had the right to resort in the event it is compelled to pay debts due by the contractor to laborers and materialmen.

Southern Surety Co. v. Greenville Bank, 122 So. 529; First National Bank & Fidelity & D. Co., 5 L.R.A. (N.S.) 418; Hornell & Co. v. American Bonding Co., 33 L.R.A. (N.S.) 513; Morgan v. Salmon, L.R.A. 1915B, 407; Young Men's Christian Association v. U. S. R. & Co., L.R.A. 1915C, 170; County of Wasco v. Insurance Co., L.R.A. 1918D, 732 and notes; Keeble v. F. & D. Co., 135 S.E. 141; State v. Coda, 138 S.E. 324.

A. K. Foot, of Canton, for appellees.

There have been four cases decided in Mississippi on the particular aspect of the case at bar to-wit. They are:

First National Bank of Aberdeen v. Monroe County, 131 Miss. 828, 95 So. 726; Canton Exchange Bank v. Yazoo County, 144 Miss. 579, 109 So. 1; Union Indemnity Company v. Acme Blow Pipe & Sheet Metal Works, 150 Miss. 332, 117 So. 251; Mississippi Fire Insurance Co. v. Evans (Miss.), 120 So. 738.

Chapter 217 of the Laws of 1918, and the other enactments relating to the letting of public contracts, show that the interests of the municipality, or other governmental agency, must be taken care of first.

Prairie State National Bank v. United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412; Union Indemnity Company v. Acme Blow Pipe & Sheet Metal Works, 150 Miss. 332, 117 So. 251; Mississippi Fire Insurance Co. v. Evans (Miss.), 120 So. 738.

It is elementary law that municipalities have no powers, except such as are delegated to them by the state, either expressly or by necessary implication; and there is no distinction in this respect between governmental powers and those of a private or business nature.

Seitenroth v. City of Jackson, 99 Miss. 354, 54 So. 955; Edwards House Co. v. City of Jackson, 138 Miss. 644; City of Kosciusko v. No Equal Textile Co., 139 Miss. 760, 104 So. 105.

If applicant's contention in the case at bar is correct, the taxpayers of the city of Canton will be held for the full contract price plus fifteen per cent.

Appellant contends that the bond is a part of the contract and modified the contract to the extent that if the retainage was paid without notice to it and its written consent obtained, the city would be liable for any claims paid by the surety. The answer to this is that the bond contemplated by chapter 217, Laws of 1918, is the usual performance bond given primarily for the protection of the city, and the law contemplates that it must fully protect the city as well as laborers and materialmen.

Commercial Bank of Magee v. Evans, 145 Miss. 643, 112 So. 483.

White & McCool, of Canton, for appellees.

There was no contract specifying that, in all events, fifteen per cent was to be retained.

Union Indemnity Co. v. Acme Blow Pipe & Sheet Metal Works, 150 Miss. 332, 117 So. 251.

We respectfully submit, that nowhere in the briefs for appellants is any distinction drawn between individuals and corporations and municipal corporations and governmental subdivisions--a distinction...

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